1 psg\jan05\ep\k2_overview(01).ppt pkn orlen and unipetrol – partnership for central europe marek...
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PSG\JAN05\EP\K2_OVERVIEW(01).PPT
PKN ORLEN and Unipetrol – Partnership for Central Europe
Marek Mroczkowski – CEO, UNIPETROL, a.s.Adam Życzkowski – CMO, UNIPETROL, a.s.
October 17, 2005
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This presentation of UNIPETROL a.s. (“Presentation”) has been prepared by UNIPETROL a.s. (“UNIPETROL” or “COMPANY”) Neither the Presentation nor any copy hereof may be copied, distributed or delivered directly or indirectly to any person for any purpose without the UNIPETROL’s knowledge and consent. Copying, mailing, distribution or delivery of this Presentation to any person in some jurisdictions may be subject to certain legal restrictions, and the persons who may or have received this Presentation should familiarize themselves with any such restrictions and abide by them. Failure to observe such restrictions may be deemed infringement of applicable laws.
This Presentation contains neither a complete nor a comprehensive financial or commercial analysis of UNIPETROL and of UNIPETROL Group. Nor does it present its position or prospects in a complete or comprehensive manner. UNIPETROL has prepared the Presentation with due care, however certain inconsistencies or omission might have appeared in it. Therefore it is recommended that any person who intends to undertake any investment decision regarding any security issued by UNIPETROL or its subsidiary shall only rely on information released as an official communication by UNIPETROL in accordance with legal and regulatory provisions that are binding for UNIPETROL.
The Presentation, as well as the attached slides and descriptions thereof may and do contain forward-looking statements. However, such statements must not be understood as UNIPETROL’s assurances or projections concerning future expected results of UNIPETROL or companies of the UNIPETROL Group. The Presentation is not and shall not be understand as a forecast of future resulats of UNIPETROL as well as of UNIPETROL Group.
It should be also noted that forward-looking statements, including statements relating to expectations regarding the future financial results give no guarantee or assurance that such results will be achieved. The Management Board’s expectations are based on present knowledge, awarteness and/or views of UNIPETROL’s Management Board's members and are dependent on a number of factors, which may cause that the actual results that will be achieved by UNIPETROL may differ materially from those discussed in the document. Many such factors are beyond the present knowledge, awareness and/or control of the COMPANY, or cannot be predicted by it. No warranties or representations can be made as to the comprehensiveness or reliability of the information contained in this Presentation. Neither UNIPETROL nor its directors, managers, subsidiary undertakings, advisers or representatives of such persons shall bear any liability that might arise in connection with any use of this Presentation. Furthermore, no information contained herein constitutes an obligation or representation of UNIPETROL, its managers or directors, its Shareholders, subsidiary undertakings, advisers or representatives of such persons. This Presentation was prepared for information purposes only and is neither a purchase or sale offer, nor a solicitation of an offer to purchase or sell any securities or financial instruments or an invitation to participate in any commercial venture. This Presentation is neither an offer nor an invitation to purchase or subscribe for any securities in any jurisdiction and no statements contained herein may serve as a basis for any agreement, commitment or investment decision, or may be relied upon in connection with any agreement, commitment or investment decision.
Legal disclaimer
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Agenda
New Unipetrol portfolio strategy
Operational improvement program
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AGROBOHEMIE a.s.
Distributor of ammonia and urea from Chemopetrol in Czech Republic
LOVOCHEMIE a.s.
Fertilizer producer Liquid fertilizers Ammonium nitrate Compound
fertilizers
Unipetrol corporate structure and product groups*
51%
100% 100%
100% 81.8%** 100%
38.8%
98.6% 55%
ČESKÁ RAFINÉRSKÁ, a.s. Processing refinery Production of fuels
and petrochemical feedstock
SPOLANA a.s.
Production: PVC Caprolactam
CHEMOPETROL a.s.
Production: Olefins Polyolefins Ammonia Urea
PARAMO a.s.
Refinery producing diesel, bitumen, lubricants, and fuel oils
KAUČUK a.s.
Production: Synthetic rubber Polystyrenes Ethylbenzene Butadiene
BENZINA a.s. 316 gas stations in
Czech Republic 3 gas stations in
Slovakia
UNIPETROL RAFINÉRIE a.s. Right to 51% of
capacity of Čraf Crude purchasing
and product wholesale
UNIPETROL TRADE a.s. International trading of
petchem and chemical products
VÚAnCh
Research Institute of Inorganic Chemistry
UNIPETROL a.s. Holding company Arranging financing for
subsidiaries
50%73.5%*** 100%
100%
*Only main subsidiaries; diagram refers to current ownership structure of Unipetrol, which may change as a result of divestmentsand acquisitions**Additional 13.4% share in Spolana is owned by PKN ORLEN (including the results of MTO). Final stake may decrease as a resultof faulty MTO applications***Additional 3.7% share in Paramo will be acquired by PKN ORLEN as a result of the MTO. Final stake may decrease as a result of faulty MTO applicationsSource:Unipetrol
ALIACHEM a.s. Production of
Agrochemicals Pigments and dyers Specialty chemicals Plastics processing
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The new Unipetrol strategy focuses on core businesses and business cooperation with PKN ORLEN to maximize the value of our assets
Medium/Low High
Value-creation potential in business unit
*Divestment might be possible only as a long-term option, after commercial obligations expireNote:The strategy presented here has been approved by Unipetrol Board of Directors and will be discussed by respective statutory bodies of UnipetrolSource:Unipetrol
Re
lati
ve
ab
ilit
y t
o e
xtr
ac
t v
alu
e
Hig
hL
ow
Keep and expand presence on the home Czech market in core businesses: • Refining• Petrochemicals• Fuel retailing
Divest non-core assets: • Specialty chemicals• Plastics processing• Agrochemicals• Subscale units and old
technologies • Styrenics
Retain and give top priority• Česka Rafinerska – diesel,
gasoline• Paramo – diesel, lubricants • Chemopetrol – olefins,
polyolefins, POX• Spolana – PVC/chloralkali,
caprolactam• Benzina • Paramo Trysk
Retain and manage for cash
• Česka Rafinerska – fuel oils, bitumen
• Paramo – fuel oils, bitumen
Divest• Aliachem (Synthesia) –
specialty chemicals• Aliachem (Fatra) – plastics
processing • Lovochemie – fertilizers • Agrobohemie• Kaučuk – ethylbenzene,
styrene, butadiene, SBR, polystyrene, ABS
Potentially divest• Chemopetrol – ammonia,
urea*, oxo-alcohols, ethanol
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Spolana PVC/chloralkali Caprolactam
Possible capital integration between Spolana and Anwil to maximize synergies through a joint commercial approach, production planning, CAPEX and headcount optimization in PVC
Explore potential benzene sourcing synergies for caprolactam with PKN ORLEN
Retail
Unipetrol follows clear strategies for key assets in priority businesses
Business Assets Strategy
Maximize value from crude purchasing Leverage joint purchasing power with PKN ORLEN Shift crude mix in Kralupy towards REBCO
Convert Paramo to processing regime and cooperate with PKN ORLEN to create an integrated lubricant and bitumen producer
Cooperate with PKN ORLEN to create integrated wholesale function organized by product (diesel/gasoline, bitumen, oils, lubricants)
Coordinate production by creating single planning unit and optimizing shutdowns*
Refining
Unipetrol Rafinérie/ Česká Rafinérská Diesel/gasoline Fuel oils Bitumen
Paramo Diesel Fuel oils Bitumen Lubricants
Petrochemicals
Chemopetrol Olefins Polyolefins POX
Integrate and optimize olefin production with refining Select optimal strategy to maximize polyolefin value Keep POX given strategic importance of hydrogen source Decide on non-core assets where spin-off/demerger/sale is complicated by commercial
linkages to priority businesses
Restore financial stability of Benzina by: Comprehensive cost reduction program and restructuring of financing Shut down of unprofitable subscale stations Fuel and non-fuel margin stimulation program
Achieve scale by acquiring other networks Realize scale synergies with PKN ORLEN in selected non-fuel purchasing and gas
stations development costs Pursue integration of Paramo Trysk with Benzina
Retail Benzina ParamoTrysk
Chemicals
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*Subject to further discussions and agreement with other IOC processing members of Česká Rafinérská.Note:The strategy presented here has been approved by Unipetrol Board of Directors and is pending approval by Unipetrol Supervisory Board and General MeetingSource:Unipetrol
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Agenda
New Unipetrol portfolio strategy
Operational improvement program
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Unipetrol EBITDA* in average 2004 macroeconomic conditions
EUR mil
Impact of Partnership Program
% EBITDA increase
Unipetrol and PKN ORLEN have developed a comprehensive operational improvement program: the Partnership Program
*Consolidated EBITDA includes Unipetrol, Unipetrol Rafinerie, Paramo, Chemopetrol, Kaučuk, Spolana, Benzina consolidated fully, Česká Rafinérská consolidated following the proportional method and Agrobohemie and Aliachem consolidated following the equity method. EBITDA calculations do not consider the effects of possible divestments
**Adjusted for one-off expenses as well as non-operating and extraordinary charges
***Expected EBITDA forecast calculated under fixed 2004 macroeconomic conditions: Brent crude $38.2/b, Brent/Ural differential $4.1/b, refinery margin $3.5/b, CZK/EUR 31.90
Source:Unipetrol
2004 baseline result
Partnership Program
• Started by Unipetrol in June 2005
• Aiming at improving operational performance across all Unipetrol subsidiaries, regardless of any future divestment decisions
• Expert support from PKN ORLEN
• All PKN ORLEN employees involved in Partnership Program bound by confidentiality agreements
• Unipetrol is preparing an additional investment program to secure and create organic growth outside of the Partnership Program
2004 operatingresult**
2008*** in 2004 conditions
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138
304
442
304
45%
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The Partnership Program impact is estimated at EUR 138 mil
2008 Unipetrol EBITDA increase vs. 2004 base*EUR mil
36
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138
68
1 Refining Petro-chemicals Chemicals Retail Total2 3 4
Unipetrol Rafinérie
Česká Rafinér-ská
Paramo
Chemope-trol
Kaučuk
Spolana Benzina Paramo
Trysk
*Budget effect calculated under fixed 2004 macroeconomic conditions. Note:Impact estimation is not reduced by the effects of future divestments.Source:Unipetrol
2008 potential*
Key value driversEUR mil
• Revenueenhancement
• Fixed cost optimization
• Variable cost optimization
Key subsidiaries from value creation perspective
%
88
38
12
63
28
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An improvement of EUR 28 mil
will be captured already in 2005
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Initiative examples Potential*
Production planning
Refining – key value creation levers in this area fall within production planning and wholesale
Key value creation levers
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Wholesale
Motor fuels sales coordination Oil and bitumen sales coordination
14.0
1.7
Intermediate streams optimization and exchange between PKN ORLEN and Unipetrol refineries and ongoing production planning integration
9.1
Other
Replacement of atmospheric gas oil (feedstock to diesel) with virgin naphtha in steam cracker feedstock pattern
Replacement of natural gas by pyrolysis fuel oil Centralized REBCO crude purchasing**
10.9
3.3
2008 EBITDA increase vs. 2004 base*
EUR mil
Total effect
EUR 68 mil*Budget effect calculated under fixed 2004 macroeconomic conditions**Actual details of potential effect are confidentialSource:Unipetrol
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Maintenance
Pricing
Other
Petrochemicals – key value creation levers in this area are in purchasing optimization, maintenance and pricing
Key value creation levers
Optimization of pricing structure in olefins, polyolefins and agrochemicals and widening of polyolefin grade portfolio
Maintenance risk and reliability management system Optimization of shutdowns: decreasing shutdown duration and
extending shutdown cycle Review of maintenance contracting policy and unit price
reduction
Purchasing optimization Alternative utilization of shut down ethanol production unit
8.8
2.1
1.2
0.5
11.4
2.2
2
2008 EBITDA increase vs. 2004 base*
EUR mil
*Budget effect calculated under fixed 2004 macroeconomic conditionsSource:Unipetrol
Total effect
EUR 36 mil
Initiative examples Potential*
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Purchasing
PVC business optimization
Key value creation levers
Chemicals – key value creation levers in this area are in the PVC business and in purchasing optimization
S-PVC sales and pricing integration PVC production optimization by increasing the length of
production runs of specific grades at Spolana and Anwil PVC technology and quality improvement: capacity increase
due to defoamer and use of hot water for polymerization
Phtalate volume concentration in Spolana and Anwil Medium-term frame contracts for base chemicals purchases Common tendering for transport services
Reduction of raw materials and utilities consumption in PVC and VCM plants (ethylene, chlorine, HCL) through process improvement
7.4
1.3
0.9
1.7
0.8
3
Utilities
2008 EBITDA increase vs. 2004 base*
EUR mil
Total effect
EUR 18 mil
Initiative examples Potential*
*Budget effect calculated under fixed 2004 macroeconomic conditionsSource:Unipetrol
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Sales process improvement
Pricing improvement
Business reorganization
Key value creation levers
Retail – key value creation levers in this area are based on pricing improvements and business reorganization
Internal best practice implementation across Benzina and Benzina Trade*, as well merging both organizations, in order to eliminate spare overhead
Fuel pricing changes and volume drive: target setting, satisfaction improvement
Fleet cards cross-acceptance, sales stimulation for corporate cards
Customer service standard improvement at the filling stations
Non-fuel margins increase: layout redesign in 80 biggest stores, supplier contract renegotiation
Imposing volume and margin targets on dealer gas stations
3.0
2.7
4
2008 EBITDA increase vs. 2004 base*
EUR mil
Total effect
EUR 16 mil
2.3
1.7
*Budget effect calculated under fixed 2004 macroeconomic conditionsSource:Unipetrol
Initiative examples Potential*
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Contact
Press Office
tel.: + 420 225 001 404 fax: + 420 225 001 447 e-mail: [email protected]
For more information please contact
www.unipetrol.cz
Investor Relations Office
tel.: + 420 225 001 407 fax: + 420 225 001 447 e-mail: [email protected]
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APPENDIX
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Unipetrol operates on a market of considerable size and with favorable growth outlook
*2000-2003 demand CAGR
Source:International Energy Agency, CMAI, Nafta Polska
Fuel consumption, 2003 Million tons Petrochemicals and plastics consumption
25.8
56.1
(3.6)
(0.5)
4.2 8.2(5.8)
4.7
0.7 0.9
2.1 3.24.2 4.8
2.37.5
4.78.7
1.4 2.32.1 3.9
3.6 4.4
Per capita, 2003Tons/1000 people
15.8
9.97.0
3.1
10.1
6.2 4.92.5
PE PP PVC PET
Western Europe
Central Europe
Growth*%
1.54.0
-1.1
11.2
5.87.8
4.6
10.3
PE PP PVC PET
Gasoline
Gasoil/Diesel
2000-03 annual growth
xx%
Western Europe
Central Europe
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Financials of key Unipetrol subsidiaries, 2004
*Following Czech accounting standards, revenues exclude excise tax
**Chart not drawn to scale
***Cost excluding tax, interest, depreciation, amortization
Source:2004 financial statements of Unipetrol a.s. and subsidiaries
Revenues*
EUR million
Costs*,***
EUR million
–
1 424
272
869323 160
643
1 381
257728
284 145611
1,906
2,276
EBITDA, EBITDA margin*,**
EUR million, %
16% 3% 6% 16% 12%
370
43 15
140
38 15 32
Unipetrol
Consoli-dated
UniRaf
(Refining)
Chemo-petrol
(Petro-chemicals)
Spolana
(Chemi-cals)
Benzina
(Retail)
Kaučuk
(Petro-chemicals)
Paramo
(Refining)
9% 5%
Unipetrol
Consoli-dated
UniRaf
(Refining)
Chemo-petrol
(Petro-chemicals)
Spolana
(Chemi-cals)
Benzina
(Retail)
Kaučuk
(Petro-chemicals)
Paramo
(Refining)
Unipetrol
Consoli-dated
UniRaf
(Refining)
Chemo-petrol
(Petro-chemicals)
Spolana
(Chemi-cals)
Benzina
(Retail)
Kaučuk
(Petro-chemicals)
Paramo
(Refining)
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The Partnership Program is a structured value creation effort involving our top talent
Identification, preparation and implementation of value creation initiatives in Unipetrol
Goal of the Partnership Program
Source:Unipetrol
Integration Steering Committee
Comprised of CEO, CFO and CMO from Unipetrol and CEO, CIO and CFO from PKN ORLEN
Sets aspirations and objectives for the integration process, monitors progress and resolves key issues
Partnership Agreement
Regulates the cooperation of Unipetrol and PKN ORLEN on specific value creation initiatives
Ensures smooth operation of the Partnership Program while preserving minority shareholders’ rights
Value Creation Teams
26 Czech-Polish expert teams focused on specific business, functional or support areas
Composed of approx. 200 managers from Unipetrol and PKN ORLEN
Teams are charged with the Identification and valuation of standalone improvements and synergies
Monitoring and review process
Monthly Integration Steering Committee meetings Ongoing implementation progress tracking Comprehensive budgetary control
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Refining initiative example: Leveraging a strong regional position to drive market share and margin
Value creation potential
Key elements
• Coordination of market activities and approach to clients in both markets
• Debottlenecking full conversion capacity of the Kralupy refinery thanks to the higher fuel sales in CR achieved through a coordinated approach to clients and competitors
• As a result, placing additional 100 kt/year of gasoline and 500 kt/year of diesel on the Czech market by 2007
11.3 14.0 14.0
2005 2006 2007
Sustainable EBITDA increase vs. 2004 base*EUR mil
1
*Budget effect calculated under fixed 2004 macroeconomic conditions
**Result of cooperation between PKN ORLEN and Unipetrol as of April 2005, even prior to the official partnership kick-off
Source:Unipetrol
**
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Petrochemicals initiative example: Pricing strategy improvement
1.44.1
8.8
Value creation potential
Key elements
• Renegotiation of key olefins contracts based on improved competitive position assessment and vigorous evaluation of clients and own options
• Direct sales to selected olefins customers currently served through 3rd parties
• Introduction of disciplined account planning focused on pricing improvement of polyolefins – assessment of net-net margin, sources of underperformance, client option analysis own fallback and client replacement analysis
• Improved product allocation and prioritization for ammonia and urea
• Coordination of production volume and pricing with Anwil
• Improved product launch process of tailor-made specialty polyolefin grade; challenge of sales targets and rigorous qualification of price premium and commercial offer
2005 2006 2007
*Budget effect under fixed 2004 macroeconomic conditions
Source:Unipetrol
Sustainable EBITDA increase vs. 2004 base*EUR mil
2
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Chemicals initiative example: PVC business optimization
Value creation potential
Key elements
• Coordination of S-PVC sales and pricing policy leading to revenue optimization on the market due to Coordination of sales and pricing
policy Prevention of price competition Increase of domestic sales
• Coordination of S-PVC production allowing Spolana to produce at full capacity
• Optimization of PVC compounds business – possibility of both price and volume enhancement due to Joint sales activities Production lines use optimization
2005 2006 2007
*Budget effect under fixed 2004 macroeconomic conditions
Source:Unipetrol
Sustainable EBITDA increase vs. 2004 base*EUR mil
0.3
4.2
9.5
3
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Retail initiative example: Fuel pricing strategy and volume drive
Value creation potential
Key elements
• Modification of pricing policy
Increase of repricing frequency from once a week to several times a week
Introduction of micro market pricing
Introduction of pricing support system
• Assigning volume targets to stations and regional managers
• Sales stimulation through corporate and fleet cards
• Implementation of new standards to dealer's contracts, dealer's motivation to standards adherence, trainings, etc.
• Customer satisfaction improvement – introducing RFB system (ready for business)
01.6
3.1
2005 2006 2007
*Budget effect under fixed 2004 macroeconomic conditions
Source:Unipetrol
Sustainable EBITDA increase vs. 2004 base*EUR mil
4
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‘Quick win’ initiatives of EUR 28 million will be realized already by the end of 2005 in Unipetrol
Already implemented
Implemented 2005 potential*
In progress
• Replacement of atmospheric gasoil insteam cracker feedstock with naphtha
7.9
• Integration of production planning 3.3
• Steam cracker feedstock optimization 0.9Implementationin progress
Total
2005 impact of ‘Quick win’ initiativesEBITDA, EUR mil, consolidated to Unipetrol level*
Key ‘Quick Win’ initiativesEUR mil
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• Motor fuel sales coordination 11.3
*Budget effect calculated under fixed 2004 macroeconomic conditions**Including other initiatives mentioned on previous slides, with impact in 2005 Source:Unipetrol
• Insurance cost reduction 0.3
• Other 3.3**
• Petrochemicals pricing improvement 1.4
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Purchasing optimization
Maintenance optimization
Utilities optimization
HR optimization
Logistics optimization
Crude oil procurement
Financial cost optimization
Wholesale optimization
čProduct planning optimization
CAPEX optimization*
Business and functional teams complement each other in the value creation effort
Business Value Creation Teams
Refining Petrochemicals Chemicals Retail
Functional Value Creation Teams
Value Creation Teams are assisted by 12 support teams in
non-business areas
Co
stR
even
ues
CA
PE
X
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*Not included in Partnership Program potential Source:Unipetrol
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Definitions and formulas used in the presentation
Definitions Formulas
Average 2004 macroeconomic assumptions used in forward-looking calculations
• Brent crude oil price: $38.2/b• Brent/Ural differential: $4.1/b• Refinery margin $3.5/b• CZK/EUR conversion rate: 31.90
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• CE (capital employed) = Net debt + Equity• Net debt = Debt – Cash – Marketable securities • ROACE = net operating profit less adjusted taxes
(NOPLAT) / average capital employed (CE)
• BOP – Basell Orlen Polyolefins
• EBITDA – Earnings Before Interest, Taxation, Depreciation, Amortization
• EBT – Earnings Before Tax
• HDPE – High Density Polyethylene
• IRR – Internal Rate of Return
• PE – Polyethylene
• PET – Polyethylene terephtalate
• POX – Partial oxidation reforming
• PP – Polypropylene
• PVC – Polyvinyl Chloride
• REBCO – Russian Export Blend Crude Oil
• ROI – Return on Investment
• S-PVC – Suspension Polyvinyl Chloride